Starbucks China and Its 20 “Rumored Partners”
"The process of selling the equity should not be dragged out. It's best to complete the transaction within six months. A long - drawn - out process will affect the morale of the China team, as well as the subsequent business arrangements and competition strategies."
Starbucks China, which has been caught in rumors of being sold, has a new "romantic interest."
Some media reported, citing sources familiar with the matter, that Hillhouse Capital recently participated in the reverse management roadshow of Starbucks China - where corporate management invites investors to visit and communicate at the business site. In addition to Hillhouse Capital, other participants in this roadshow include investment institutions such as Carlyle Group and CLC Capital.
Several months ago, similar news emerged: Multiple private equity funds, including KKR & Co., Fountainvest Partners, and PAG, were considering acquiring equity in Starbucks China's business. China Resources Group and Meituan were also on the list.
A source familiar with the matter confirmed the above situation to China Entrepreneur. "Around 20 institutions have communicated with Starbucks China one after another. Hillhouse is just starting and is still in a very early stage."
In the view of the founding partner of a PE institution that has participated in the equity bidding of a chain catering company, this is a common practice in equity sales. Generally, the company will first find potential investors in the market through financial advisors, spread some rumors in advance to drive up the price and create a competitive atmosphere, and then select a dozen or so institutions for due diligence and bidding.
According to the latest news, the asset valuation of Starbucks China is about $5 billion to $6 billion. Starbucks China officially declined to comment on the current progress. "It is certain that Starbucks is not currently considering a complete sale of its China business," Starbucks China said in a reply to China Entrepreneur.
Heavyweight Buyers
The assets of Starbucks China have attracted many seasoned buyers.
Brian Niccol, the global CEO of Starbucks, previously revealed in an interview, "We've attracted a lot of interest - people see the potential of the Starbucks brand and the growth of the coffee category."
And the previously disclosed potential investors include both well - known private equity funds and industrial investors.
Among them is KKR & Co., which started with mergers and acquisitions and is known as the "King of Wall Street Acquisitions." It has invested in COFCO Meat in the agricultural and food sector but has rarely been involved in the chain catering field. Another is Fountainvest Partners, which jointly acquired Amer Sports, the parent company of Arc'teryx, with Anta Sports - achieving the largest cross - border acquisition in the history of China's sporting goods industry. It also completed the acquisition of CFB Group, which owns more than 1,100 restaurants, including consumer brands such as DQ and Papa John's stores south of the Yellow River in China. In contrast, PAG, known as the "little Blackstone in Asia," has property resources - it recently announced the acquisition of 48 Wanda Plazas under Wanda Commercial. It was also the lead investor in the Series C financing of Nayuki, the "first new tea stock."
The industrial investors also have prominent backgrounds. One is China Resources Group. Its subsidiary, China Resources Enterprise, fully owns Pacific Coffee, and its MixC provides property support. However, under fierce market competition, the number of Pacific Coffee stores has been decreasing, and there were even rumors that it might be sold. The other participating company, Meituan, not only has a food delivery platform but also continuously invests in the beverage track through its industrial fund, Meituan Longzhu, and has invested in brands such as Mixue Bingcheng, Guming, Heytea, and Manner Coffee.
"I heard that Starbucks asked these investors to submit 'essays' - to understand their views on the current competition in the Chinese market and their understanding of Starbucks' 'Third Space' concept. Starbucks will consider not only the investors' capital and resources but also their business and investment concepts." The above - mentioned founding partner revealed.
But Starbucks seems to be unable to make up its mind. 21st Century Business Herald reported, citing sources familiar with the matter, that February was the first round of negotiations, and now (June) it may be in the second or third round of negotiations. "One possible speculation is that Starbucks headquarters was not satisfied with the conditions of the first - round negotiations and added new participants."
According to the above - mentioned source, Hillhouse Capital's contact with Starbucks is still in a very early stage. However, in this year's Hong Kong IPOs, Hillhouse Capital, as a cornerstone investor, has made consecutive moves. In the consumer field, there are two cases. In June, Hillhouse Capital participated in the cornerstone investment of Haitian Flavoring & Food with $350 million. Earlier, as a cornerstone investor, Hillhouse Capital subscribed for more than 200 million yuan worth of Mixue Bingcheng's stocks. Coupled with its previous lead investment of nearly 1 billion yuan, it has become the largest external institutional investor in Mixue Bingcheng and has promoted the latter's digital transformation. Moreover, Hillhouse Capital has prepared sufficient funds for mergers and acquisitions. According to a Bloomberg report in May, Hillhouse Capital was about to complete its latest round of financing, raising approximately $18 billion, of which about $10 billion would be used for acquisitions.
For CLC Capital, its previous experience in operating McDonald's China is its most convincing resume. In 2017, CITIC Capital, the parent company of CLC Capital, CITIC Limited, and Carlyle Group jointly acquired 70% of the shares of McDonald's China. The new company, "Golden Arches," became the sole franchisee of McDonald's in China, and since then, McDonald's has entered a period of rapid development in China. The number of stores increased from 2,400 in 2016 to 7,000 in 2025, with about 50% of the restaurants located in third - tier, fourth - tier, and fifth - tier cities - which is exactly the sinking market that Starbucks hopes to develop.
As the competition intensifies, the valuation of Starbucks China is constantly being updated. In February, market rumors suggested that the transaction valuation of the equity sale might exceed $1 billion. By June, the latest data showed that the valuation of Starbucks China's business was about $5 billion to $6 billion.
"For investment institutions, Starbucks China is undoubtedly a high - quality asset, and its brand value still exists. However, compared with McDonald's China back then, it has a larger scale, and the coffee market is more competitive. Therefore, the requirements for the acquirer are higher," the above - mentioned founding partner pointed out. "The key is to maintain the stability of the current management team. Although the equity of McDonald's China changed hands, the management team was not significantly affected, which is very important."
A Stopgap Measure
The market has changed beyond Starbucks' expectations.
In September 2023, when answering questions from China Entrepreneur, Laxman Narasimhan, then the global CEO of Starbucks, clearly stated that "Starbucks' China business will not be spun off or introduce strategic investors."
At that time, Starbucks was still moving forward at full speed in the Chinese market. In the fourth quarter of fiscal year 2023, Starbucks China's revenue reached $840.6 million, a year - on - year increase of 15%. It opened a net of 326 new stores, a record high. Same - store sales increased by 5%, and same - store transactions increased by 8%. The number of active members of the Starbucks Rewards program exceeded 21 million, a year - on - year increase of 22%, also a record high.
However, in fiscal year 2024 (ending in September 2024), the situation took a turn for the worse: Starbucks China's revenue decreased by 1.4% year - on - year, same - store sales dropped by 8%, and the average customer spending also decreased by 8%. At this time, Narasimhan changed his tune. At the general meeting of shareholders at the end of July that year, he first mentioned the possibility of introducing partners. "Over the past 25 years, we have gone through different development stages in China and relied on different strategic partnerships to develop our business and capabilities, such as joint ventures and strategic partnerships in technology, real estate, and the supply chain."
After that, Narasimhan left his position due to poor performance, but Starbucks China's development policy remained unchanged. Brian Niccol, the newly appointed global CEO, said that Starbucks will continue to explore strategic partnerships to support long - term growth.
Photography: Deng Pan
In the short term, Starbucks has returned to the growth track. According to the data for the second quarter of fiscal year 2025, Starbucks China's operating income reached approximately $740 million, a year - on - year increase of 5%, and same - store transactions increased by 4% year - on - year.
But in the long term, Starbucks is facing increasing challenges. On the one hand, the pace of store expansion is slower than expected. According to Starbucks' 2022 plan, the total number of stores in China would reach 9,000 by 2025. However, as of the end of March 2025, the number of stores was 7,758. According to Starbucks' internal estimates, it is highly likely that the store - opening target will not be achieved. On the other hand, competitive pressure has put Starbucks in a passive position. In mid - June, Starbucks China, which has always emphasized not engaging in price wars, announced price cuts for 10 products in three non - coffee series, including Frappuccino, Iced Shaken Tea, and Tea Latte, with an average price reduction of 5 yuan per product.
Once - smooth - sailing Starbucks has fallen behind the market rhythm under the new competitive situation.
This situation is similar to that of McDonald's in 2016. At that time, it had 2,400 restaurants in mainland China, while its competitor, KFC, had more than 5,000 stores - and the gap was constantly widening. After introducing shareholders such as CITIC Capital, with the help of the latter's rich property resources, the decentralization of management decision - making power, and the rapid introduction of digitalization, McDonald's China became more localized and expanded its stores more quickly. In 2024, McDonald's China opened 917 new stores, and in 2025, it plans to open about 1,000 new stores.
In 2023, McDonald's Global repurchased the 28% stake in McDonald's China held by Carlyle Group for $1.8 billion. Chris Kempczinski, the president and CEO of McDonald's Global, said, "Now is the best time to simplify the equity structure. China is McDonald's fastest - growing market globally, and its long - term development potential will continue to benefit us."
Perhaps this is also a better choice for Starbucks in the Chinese market. In the view of the above - mentioned partner, as Starbucks' second - largest market globally, the importance of Starbucks China is self - evident. Therefore, by selling part of the equity through brand franchising, maybe a company like "Golden Arches" could be established, adopting more localized competition strategies, and repurchasing the shares at an appropriate time in the future. This way, Starbucks can have more flexibility.
"Starbucks firmly believes in the huge growth opportunities in the Chinese market. We are evaluating the best way to seize future growth opportunities," Starbucks China said in a reply to China Entrepreneur.
But the above - mentioned partner also pointed out, "The process of selling the equity should not be dragged out. It's best to complete the transaction within six months. A long - drawn - out process will affect the morale of the China team, as well as the subsequent business arrangements and competition strategies."
This article is from the WeChat official account "China Entrepreneur Magazine" (ID: iceo - com - cn), author: Liang Xiao, published by 36Kr with authorization.